How Crowdfunding Took On Private Equity And Won

Until very recently, anyone running a private company in the UK would have automatically turned to the private equity or venture capital sectors when looking for their first slice of equity capital. But research just published suggests this conventional route to fund-raising no longer offers the greatest prospects of success; online crowdfunding platforms are now more likely to provide the financing such companies are looking for.

Research agency Beauhurst’s analysis of investments into non-listed high-growth investments in the UK last year reveals that crowdfunding is now outperforming. The two largest platforms, Seedrs and Crowdcube, together accounted for 21 per cent of all such equity investment in the UK last year according to Beauhurst’s research.

Given that these two businesses didn’t even exist six years ago – Crowdcube launched in 2011 while Seedrs came along in 2012 – that’s remarkable. Between them, the two platforms funded more than 250 companies last year, with 45,000 investments from users in these companies' equity.

Moreover, while crowdfunding is typically associated with investments in the smallest businesses – seed-stage capital in other words – Beauhurst’s research suggests the leading platforms are increasingly credible options for companies that are more mature.

At both Seedrs and Crowdcube, around two-thirds of the companies supported last year were seed-stage businesses. However, the platforms also accounted for more venture-stage investments than any other single source of finance; they also facilitated a number of growth investments in even larger companies. This evolution suggests crowdfunding has reached the stage where it can compete at every level of the fund-raising market for private businesses.

That maturation is set to continue, argue platform bosses, with institutional money now entering the equity crowdfunding marketplace for the first time, facilitating larger fund-raisings.

“2017 will be the year in which institutional capital begins to play a meaningful role in equity crowdfunding,” says Jeff Lynn, the CEO of Seedrs. “We are now beginning to see the first exits from investments made at the beginning of the equity crowdfunding era… where we are today is roughly where peer-to-peer lending was when institutional investors first entered that space.”

At Crowdcube, meanwhile, co-founder Luke Lang is also convinced that the year ahead promises to be even more fruitful for equity crowdfunding platforms, given that the sector suffered, like every part of the growth capital marketplace, from a slowdown in demand from businesses raising money last year.

“From our discussions with entrepreneurs, it is clear that many put fundraising plans on hold in anticipation of the referendum [on the UK’s membership of the European Union],” Lang says. “It’s encouraging to see that the crowdfunding industry is outperforming the market.”

Beauhurst CEO Toby Austin suggests that the success of the equity crowdfunding market should provide comfort for those concerned about the ability of growing small and medium-sized enterprises in the UK to raise finance.

“If there is a reason to be optimistic about prospects for equity finance, it lies with crowdfunding,” Austin argues.

Despite a decline in the total number of deals financed by all equity investors last year – the first such fall since 2011 – activity on the leading crowdfunding platforms increased. Beauhurst’s research suggests these platforms are increasingly likely to be growth companies’ first port of call when looking for equity capital.

For full story: https://www.forbes.com/sites/davidprosser/2017/02/10/how-crowdfunding-took-on-private-equity-and-won/#5976f02addbd